There isn't any legal issues using this model format? Aka used in commercial software?

Using the model format should be okay. It's fairly documented, the Quake III source code is GPLed and there are quite a few 3d-modeling-plugins that support .md3-files, as well. Using models from the game won't be okay, of course. I asked the author of the demo model for permission prior to using it in my project.

I was convinced it did use bones, so I searched around and found this post: http://www.gamedev.net/community/forums/topic.asp?topic_id=121881. Scroll down to the guy who explains that on the original version (for Quake 3 Arena) it used keyframe animations whereas on the second one (for Quake 3 TA) it used bones. Any chance of binding it to either Cyberkilla's or, preferably, Raft's bones?